Obamacare change to assist those with canceled plans complicates matters for insurers

The Obama administration said Thursday night it will exempt people who received notices that their health plans are being canceled from certain ACA requirements. - (NJBIZ)

In what could be seen as back-pedaling from the Affordable Care Act's “individual mandate” requiring most Americans to get health coverage in 2014 or pay a penalty, the Obama administration said Thursday night it will exempt people who received notices that their health plans are being canceled. These people, estimated at about a half million nationwide, will be allowed to buy low-cost catastrophic health plans—which ACA rules restrict to those under age 30 – or they could simply skip buying health coverage altogether.

The political impact of the rule exemption could be far wider than the number of Americans impacted, since it appears to represent at least a partial rollback of the individual mandate.

Health insurers maintain the individual mandate is necessary to keep coverage affordable and were quick to criticize the new policy. The change "could cause significant instability in the marketplace and lead to further confusion and disruption for consumers," Karen Ignagni, the head of America's Health Insurance Plans, the industry trade group, said in a statement.

The relaxation of the individual mandate is part of Obama's effort to tamp down on the continued political fallout from the trouble-plagued rollout of the ACA. Obama had promised that people who liked their existing health plans could keep them, then millions of Americans began receiving cancelation notices this past fall because their health plans don't meet the ACA's requirements.

Obama gave insurers the authority to voluntarily renew those substandard policies anyway through 2104—but many insurers concluded they couldn't change course and renew old policies. In New Jersey, three major players in the market decided to move ahead with ACA-compliant plans rather than renew the old ones: Horizon Blue Cross Blue Shield of New Jersey, AmeriHealth NJ and Aetna.

The latest concession came from Department of Health and Human Services Secretary Kathleen Sebelius, in a letter to six senators: Democrats Mark R. Warner and Tim Kaine of Virginia, Jeanne Shaheen of New Hampshire, Mary L. Landrieu of Louisiana and Heidi Heitkamp of North Dakota and independent Angus King of Maine.

But the prospect that healthy people with canceled insurance might opt out of the new health plans set off immediate alarm among insurance industry leaders, who already have been worried whether enough people who are inexpensive to cover will sign up.

A health insurance official, who spoke on the condition of anonymity, told the Washington Post that the hardship exemption also gives one group the ability to buy coverage whenever they want, rather than during annual open-enrollment periods. As a result, he said, more people might not buy insurance unless they get sick.

The insurance official suggested that some people who have chosen new health plans after receiving a cancelation notice might back out of their new coverage to take advantage of the administration's sudden offer.

Federal health officials, however, predicted few people would take advantage of the opportunity to avoid the law's benefits requirement.

"This is a common-sense clarification of the law," said Joanne Peters, a spokeswoman for the Department of Health and Human Services. "For the limited number of consumers whose plans have been canceled and are seeking coverage, this is one more option."

Insurance broker David Oscar of Altigro said he and his colleagues are struggling to cope with the steady stream of rule changes by the government during the ACA's rocky rollout. In New Jersey, about 100,000 people are covered by "basic and essential" plans sold on the state's individual market—and those plans are being canceled because they don't comply with the 2014 ACA rules. Oscar predicted many of those people would want to take advantage of the Obamacare rule change, and buy a low-cost catastrophic plan for 2014.

But there is a major problem, Oscar said: Insurance carriers have only issued rates for catastrophic plans for individuals under age 30, since under the ACA, they are only ones eligible to buy them. "If we can really buy a catastrophic plan for any age, then it will be the cheapest plan" available, he said. Oscar said he one of his clients, a 29-year-old, is paying $179 a month for a catastrophic plan with a $6,350 deductible. "But I have no idea what the rate would be for a 60-year-old." Oscar noted that Monday, Dec. 23 is the deadline for individuals to buy coverage that takes effect Jan. 1 on healthcare.gov, the ACA website where moderate income Americans can get subsidies to buy health insurance.

So right now, "you will have people looking to buy a catastrophic plan that [insurers] don't have rates for and they have to get it done by Monday" for plans that renew on Jan. 1.

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Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.